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US House passes bill replacing $50B threshold with risk assessment

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US House passes bill replacing $50B threshold with risk assessment

The U.S. House of Representatives passed a bill that proposes replacing the $50 billion threshold for enhanced supervision with a five-point risk-based assessment.

The bill from Rep. Blaine Luetkemeyer, R-Mo., would give the Federal Reserve the authority to assess the application of enhanced supervision on a bank holding company based on its size, interconnectedness, substitutability, global cross-jurisdictional activity and complexity.

The bill, passed in a 288-130 vote Dec. 19, would remove a regulatory boundary for the designation of systemically important financial institutions, or SIFIs, that critics have long characterized as arbitrary. A risk-based assessment, along the same lines as the test used to categorize capital surcharges for the global systemically important banks, could push the Fed to focus more regulatory attention on foreign banks. The bill was co-sponsored by 16 Democrats.

"Bottom line is this: An inefficient regulatory structure that does not reflect the reality of the U.S. banking system can have real economic consequences," Luetkemeyer said before the vote. "We should no longer let the SIFI process lead to marketplace disruption or penalize companies for size alone."

Opponents of the legislation argued that the bill would lift requirements for stress testing and other supervisory activities on some of the largest banks in the country.

"These are some of the most important rules in Dodd-Frank," House Financial Services Committee Ranking Member Maxine Waters, D-Calif., said in remarks on the House floor.

The bill will now need consideration from the Senate, which appears to have abandoned the legislative prospects of installing a risk-based assessment. The Senate Banking Committee recently passed a package bill for financial regulatory reform that would raise the threshold to $250 billion, allowing immediate relief for banks with total assets between $50 billion and $100 billion while permitting the Fed to continue applying enhanced standards to banks between $100 billion and $250 billion as it sees fit.

Senate Banking Committee Chair Mike Crapo, R-Idaho, said he would have preferred a risk-based assessment but was unable to incorporate it into the bill.

Isaac Boltansky, analyst at Compass Point Research & Trading, wrote in a note that the Senate bill remains the "real show."